Argentian shale play to double output by 2018

Production from Latin America’s premier shale play, the Vaca Muerta, is expected to double by 2018, according to a new development study by Wood Mackenzie. Argentina’s massive play continues to be the most prospective tight oil play outside of North America.

While a marked ramp-up can be expected by 2020, the study highlights that oil and gas output in 2016 should be moderate with year-over-year production at 10%.

Wood Mackenzie expects horizontal wells to become the development of choice as operators are increasingly able to target the most productive intervals of the Vaca Muerta.

‘YPF and its joint venture partners continue to decrease drilling and completion costs aiming to move into ramp-up and development phases,’ says Horacio Cuenca, Research Director for Latin America at Wood Mackenzie based in Rio de Janeiro.

In the Loma Campana block, average initial production is around 646 boe/d, up from 443 boe/d in 2014.  To compare, in the Karnes Trough of Texas’ Eagle Ford Shale, the first hundred wells had an average initial rate of 420 boe/d, while the average rate today is more than double.

Cuenca adds that more joint venture deals will be necessary to fully develop the Vaca Muerta as YPF will need outside assistance to develop the 6.3mn acres (larger than the state of Maryland) it holds.

The following are other key considerations from Wood Mackenzie’s development study:

·         In 2016, total capex is expected to reach $1.2bn as companies prepare for full development.

·         The heavy impact of unions on labour costs and political uncertainty remain the largest impediments to international investment. Some 200 wells are expected to be brought online in 2015, and fewer in 2016 as vertical wells are phased down. Currently there are approximately 460 producing wells.

·         The condensate window, including the Loma Campana block, drives value. Wood  Mackenzie estimates a total remaining NPV10* of $9.7bn for the Vaca Muerta.

*NPV10 means net present value in money of the day using a 10% forward discount rate.